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1 Philipp Klaus 2015 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Klaus, Philipp. Measuring customer experience : how to develop and execute the most profitable customer experience strategies / Philipp Klaus. pages cm ISBN Customer services. 2. Customer satisfaction. I. Title. HF K '12 dc Typeset by MPS Limited, Chennai, India.

2 Contents List of Figures and Tables Foreword viii Preface xi Acknowledgments xiii vii 1 Customer Experience: The Origins and Importance for Your Business 1 2 CX Strategies and Management Practices 22 3 The 5 Dimensions of CX Management 30 4 The 3 Types of CX Management Practice 45 5 Linking CX Practices to Profitability 58 6 Your CX Management Balance Sheet: Where Are You and Where Do You Want to Be? How to Get from A (Current State) to B A Step-by-Step Approach 65 7 The Devil Is in the Details Only What Get Measured Gets Managed 81 8 Best Practice vs. Next Practice Concluding Thoughts 114 v

3 vi Contents 10 The Science behind the Knowledge 119 Appendices 139 Notes 145 References 146 Index 164

4 Customer Experience: The Origins and Importance for Your Business chapter 1 Today s organizations have a new, overarching, and often overwhelming challenge to successfully manage the customer experience. This challenge ranges from seeking how to create compelling customer experiences through all stages of the customer s engagement, to managing the customer s expectations and assessing it, before, during, and after the buying process (Berry et al. 2002). There is widespread agreement that customer experience is different from, and more complex than, service quality (e.g., Schembri 2006) and customer satisfaction (e.g., Verhoef et al. 2009), and that it is context specific (Lemke et al. 2011). This makes it difficult for scholars, researchers, and consultants both to assist managers in understanding customer experience and suggest generic best practice to them. It is therefore up to managers to interpret this emerging concept and make sense of its implementation (Maklan & Klaus 2011). customer experience is different from, and more complex than, service quality and customer satisfaction In order to understand Customer Experience (CX), we need to first explore its origins the history of the phenomenon. Understanding the history of the CX concept is important as it will allow us not only to see how 1

5 2 Measuring Customer Experience CX evolved over time, but also give us the ability to learn from others choices, mistakes, and opportunities. CX management is about applying knowledge, and managers are wise if they use knowledge that someone created and applied before them. After all, an intelligent man learns from his own mistakes, but a wise man learns from others mistakes. Learning about how researchers viewed, explored, and defined CX in the past is important so we can start where they left off and move on, instead of just repeating what they did. To survive in today s economy, offering high-quality goods and services alone is not sufficient. Companies have to compete on a more complex level by creating a satisfactory customer experience through all stages of the buying process, managing the customer s expectations and assessments before, during, and after the sale. Definitions of CX are truly broad. They range from a customer s actual and anticipated purchase and consumption experience, a distinctive economic offering or the result of encountering, undergoing, or living through things, to the notion of the new, experience-seeking consumer as co-creator of value and experience. The term co-creation highlights the influence of customer experience on experiential marketing strategies, such as the ones desired and executed in the luxury goods/services, tourism, travel, and hospitality contexts. Research links customer experience to most of the outcomes that managers want to measure, or, are actively measuring. These may be intentions and a customer s state-of-mind (e.g., customer satisfaction, a customer s intention to become and/or stay loyal, or the likelihood of them giving a recommendation), or actual behavior (e.g., actively recommending the firm s offerings, purchasing, and repurchasing behavior, share-of-category, or word-of-mouth behavior). However, while the phenomenon of customer and consumption experience can be traced back as far as to the contributions of economists Adam Smith and Alfred Marshall in the early twentieth century, the recent significant number of managerial, academic, and consultancy publications in the field still lacks both a solid foundation and coherent messages about the nature, and more importantly, the

6 Customer Experience 3 management of customer experience. By this I refer to the fact that we still cannot grasp CX s true meaning what CX actually is, and how to explore knowledge leading to managerial actions. Psychologists, consumer behavioralists, business, management, and marketing scholars, philosophers, economists, managers, and consultants try to approach and make sense of customer experience from their unique viewpoints. Measuring Customer Experience provides you with an extensive review of what has been written about CX as of today. The following historical summary and evolving categories reveal and explain the different CX perspectives and their crucial interconnections. Table 1.1 shows the structure of the literature review, indicating a broad chronological representation of the CX literature. However, the categorization into ten streams does not imply a smooth evolution from one stream of research to another. These streams are not mutually exclusive some are complementary and overlap. These ten streams of literature are subsequently divided into three categories, content, process, and practice, which represent the main foci a typology of CX thinking (see Table 1.1). The content category is concerned with describing different concepts of CX, establishing its foundations and representing different theoretical views table 1.1 Customer experience research foci Category Literature streams Content The concept of Economic perspectives customer experience Rational cognitive theories Experiential emotional theorists and the role of affect Peak experiences Process How customer experiences arise and evolve Practice The portrayal of customer experience management literature Unidirectional perspectives of customer experience Co-created experiences Dialogical perspectives Brand communities and customer experience Consultant/analyst perspectives of customer experience Services marketing perspectives

7 4 Measuring Customer Experience about it. The process category includes a range of perspectives on how the customer experience arises and evolves during interactions with consumers. The process category builds on the research discussed in the content section, emphasizing the role and degree of involvement of the customer experience provider and the customer in designing and influencing the customer experience. The practice category assesses the CX practice and CX management literature. This category includes the newer contributions of recent service marketing and CX research, positioning customer experience as a new competitive imperative for companies, leading to insights on how to successfully measure and therefore manage it. Content the concept of CX Economic perspectives first traces The importance of customer experience as the driver of consumption has been indicated in the early economic literature (e.g., Keynes 1936), in which it is described as the measure on which consumers decide what goods and resulting experiences to purchase (Parsons 1934). The power of rationality Despite these early acknowledgments of the importance of customer experience as a sufficient choice criterion (Howard & Sheth 1969, p. 26) for buyers behavior, the rational (i.e., cognitive-focused) examinations of early behavioral researchers insisted on explaining consumer actions as a purely rational cognitive process (e.g., Ajzen & Fishbein 1977). This view, linking cognition, affect, and behavior (CAB), suggests that customers are involved in a rational assessment of their past, present, and imagined future experience and use this information to determine their behavioral intentions. According to CAB, customers base their decision process on a sequential rational assessment of expectations versus outcomes (e.g., Gronroos 1997). CAB researchers believe that customers collect sufficient information to evaluate choices by constantly assessing their expectations one by one, which, in turn, drives their intentions. However,

8 Customer Experience 5 despite complications and inconsistencies in their conceptualization, CAB researchers uphold their definition of rational consumer behavior as the leading theory in buying behavior. Predictably, experiential researchers challenged this notion. It s not all brain the role of emotions Experiential researchers suggest that emotions play a, if not the, critical role in consumer behavior. Subsequently, they re-introduce the significance of emotions, and the emotional customer experiences in consumer behavior (e.g., Hirschman & Holbrook 1982). This shift towards a non-utilitarian focus to explain consumer choices is supported by the distinction between buying and consuming behavior, affirming that using a product or service (i.e., the customer experience), will ultimately determine a consumer s choice (Alderson 1957). This transference from the functions towards the hedonistic properties of products and services highlights emotions importance for CX management (Klaus 2011). The fascination of the extraordinary Building upon emotional factors as a cornerstone to explain consumer behavior, researchers now turned their focus towards the differences in these emotional experiences. From this research two streams of knowledge emerged: extraordinary experiences and the overall assessment of customer experience (Klaus & Maklan 2011). Extraordinary experiences research, based on a social science framework, challenges the notion of the traditional, service-quality-grounded thinking that the customer experience is a summation of all the elements of a holistic customer experience (Verhoef et al. 2009). Extraordinary experiences research refers to the idea that, while encountering extraordinary experiences, such as the often-cited river rafting experience (Arnould & Price 1993), tourism, vacations, dining, being in entertainment parks, and taking part in sports and leisure activities, consumers both cannot and do not follow the traditional confirmation disconfirmation paradigm facing these experiences (Klaus & Maklan 2011). This paradigm states that customers simply judge their experiences by comparing their expectations to their perceptions. Among

9 6 Measuring Customer Experience extraordinary experiences, the most developed categories are flow and peak experiences. Schouten et al. (2007) coined the term transcendent customer experience to refer to flow and/or peak experiences. Flow experiences occurrences are events in which we are completely involved in an activity for its own sake. Our ego takes a backseat, time flies, every action inevitably follows the previous one, and we are completely involved. This is often referred to as being in a zone, and can occur during creative activities (e.g., drawing or writing) or while engaging in the sport of our choice. Peak experiences are often described as moments of pure joy and excitement moments that stand out from everyday events. People often connect the lasting memories of peak experiences with a spiritual, even divine, experience. Both flow, and peak experiences are related (Privette 1983) and sometimes overlap in the same activities. Carù and Cova (2003) highlight, though, that we should not forget about the ordinary experiences and their interlink relationship with extraordinary experiences. Their key message is that without comparing ordinary experiences derived from our daily mundane life in fact, benchmarking them no experience can be called extraordinary. Thus, those ordinary experiences are also important parts of our lives, and can consist of different levels of intensity. As a result, researchers propose that the customer experience exists on an ever-shifting continuum between ordinary to extraordinary, rather than being mutually exclusive to either one (Klaus and Maklan 2011). While we can establish that customers actions are more and more experience-driven, this fact provides little guidance to managers to determine which kind of experience drives which kind of behavior at which particular stage. Managers often do not know if and when the design of extraordinary experiences is required to drive the important behavior they are looking for, such as purchasing, repurchasing, loyalty, and positive word-of-mouth. Moreover, if experiences are indeed a blend between extraordinary and ordinary experiences, how can managers understand at which stage and through which channel, these different experiences need to be designed and delivered? Perhaps the knowledge of how experiences arise and evolve the customer experience process can provide us with some answers to these burning questions?

10 Customer Experience 7 Process how customer experiences arise and evolve Based upon the findings of the kinds of customer experiences consumers can have, researchers moved on to explore the various perspectives on how the customer experience arises and evolves during the interactions between the firm, their channels, their products, their employees, their products and services, and consumers (e.g., Schmitt 2003). In particular, the role and degree of involvement of the CX provider and the customer in designing, delivering, and influencing the customer experience have stimulated multiple research domains. Let s get together from unidirectional to co-creation The research ranges from a more provider-driven, unidirectional (the firm s) perspective to customer-driven, co-created experiences (Palmer 2010). On the one hand, researchers suggest that every firm can, with the support of their customers, aim to carefully craft the delivery of a customer experience (Payne et al. 2008). This perspective highlights the role of knowledge-sharing processes, as the firm seeks to understand every facet of the customer experience throughout all direct and indirect encounters and interaction with their existing and potential customers (Frow & Payne 2007). And, let s be quite clear, both viewpoints (the firm s and their customers ) play a vital role in developing, executing, measuring, and managing the customer experience. On the other hand, researchers indicate that the involvement of customers in the experience design and management process will add little more than costs, and confirmation of already existing knowledge. Or as the Chief Marketing Officer (CMO) of a telecommunication company mentioned in an interview with me, We already know what they [the customers] want. They want it cheaper, faster, and more reliable. How could that possibly help us? Other internal market research groups, such as consumer electronics, raise similar questions by highlighting that often consumer simply don t know what they really want. So, how could this help us in our research and development process? In addition, of course, there is always the notion of managers just knowing their customers better than they do themselves.

11 8 Measuring Customer Experience However, a famous study highlights that while 80 percent of Chief Executive Officers (CEOs) claim they deliver great customer experiences, only 8 percent of their customers agreed with this judgment. Co-creating experiences requires interactions between the customer and the firm. While researchers link these approaches with customer experience, sometimes the connection is vague (Klaus & Maklan 2011). Unlike the peak experience perspective, the co-creation perspective regards the customer experience holistically, including all interactions in a sequential order (Payne et al. 2008). Co-creation considers every interaction as imperative to the customers evaluation of their experience (Ballantyne & Varey 2006). The function of the firm is therefore to facilitate the customers ability to attain an optimal experience (LaSalle & Britton 2003). One limitation of the co-creation idea is its insufficient explanation of the impact of social context on the customer experience, such as peer-to-peer interactions. We all know how influential these peer-to-peer, or, if you like, consumer-to-consumer/customer-to-customer interactions are. Just think about the power of peer review in e-commerce, or the influence of rating websites such as TripAdvisor. An individual experience of a product or service may be highly dependent on the social experience of a group or wider social context (Gentile et al. 2007). After all, we experience having dinner by ourselves, with our loved ones, or with a group of friends, in entirely different ways, simply because of the company (or lack of it) we are in. Researchers argue that the social context, perhaps more accurately labeled as the customer context, indicates that the customer experience is dependent on customer, other customers, and service provider alike (e.g., Mascarenhas et al. 2006). Brand community research is another domain providing some useful insights into the customer context aspect of the customer experience (Schouten et al. 2007) by highlighting the community aspect, which we today find so often in social media. However, the research often fails to identify how membership in a brand community changes the overall customer experience, and, more importantly, consumer behavior. Christensen et al. (2005) expand on this literature by submitting that the context defined as what customers are trying to accomplish, independent from the service provider can affect

12 Customer Experience 9 the customer experience. Imagine you simply want to get a job done: For example, after researching which tablet you want to buy, you simply want to walk into the airport store and purchase it for the advertised price. No hassle, no sales talk, no additional insurance, no set-up required, no other requests. You simply want to buy the tablet and get on the plane. However, the service person follows their script and asks you all these questions: Are you certain you want this one? Have you seen this one? Can I offer you this one? and so on. In this case, your experience might not be a good one. Now imagine scenario two: You walk into the same store, but you aren t certain yet which tablet you want to buy. The same service person and approach might now be offering exactly the guidance and information you are looking for. You most likely will have a good experience, and leave the shop with a tablet, too. In both cases, you were looking to purchase the same tablet, and you did, but your experiences, and the likelihood of sharing them, and the likelihood of returning to the store are on the opposite sides of the spectrum. And this depended solely on the experience you were looking for, not the product, not the price, not the service personnel, and not the store location. Another approach in exploring the influence of customer experience is to discover the roles of multiple stakeholders (Roper & Davies 2007). This perspective draws attention to the fact that the customer and firm relationship is only one of many relationships important in creating the customer experience (Verhoef et al. 2009). It suggests that understanding the customer experience involves identifying the influence of all stakeholders in creating the customer experience. The contribution of this research is the added, socially constructed focus, and therefore enriched understanding, of the customer experience. However, we still need to determine which offerings need to incorporate the influences of these stakeholder interactions in their CX design. While process research delivers some interesting insights into if and if yes, how the firm, the customers, and other stakeholders can interact and eventually create experiences together, it also raises many questions. For example: When is a more unidirectional, transactional management practice more appropriate than an experience-based one? How can a firm determine and influence the

13 10 Measuring Customer Experience importance of peer-to-peer interactions? Will other stakeholders be a part of the customer experience design? If yes, which ones, and in what capacity? In the following we now take a look at how today s firms practice CX and what we can learn from them. Practice portrayal of CX management literature CX is not explicitly discussed in the context of marketing practices, and rightfully so, because it is, after all, a strategic initiative. However, there is an emerging practices literature within the marketing discipline, which follows work in other disciplines such as sociology, anthropology (Garfinkel 1967), and social philosophy (Schatzki 1996). Most of the marketing literature, is focused on either the entertainment aspects of the customer experience (Pine & Gilmore 1999) or on managerial outcomes and actions (e.g., Berry et al. 2002). The impact of customer experience on business has not been discussed in the marketing literature until recently (Prahalad & Ramaswamy 2004). Creating superior customer experiences is seen as one of the key objectives for the success of the organization (Verhoef et al. 2009). Organizations are elevating the management of customer experiences to a top-priority item in their efforts to build customer loyalty in brands, channels, and services (Badgett et al. 2007). Managing customer experience quality has become a crucial strategic ingredient for all organizations. In contrast to the recognition of the importance of the CX concept for organizations, the focus of traditional marketing literature has been the measurement of customer satisfaction and service quality (Verhoef et al. 2009). However, some scholars are now challenging the current definition of service quality, its usefulness, and its corresponding measures (Schembri 2006). They believe that customer experience is the key determinant of service quality evaluation. Berry et al. state that by definition, a good customer experience is good customer service, thus the customer experience is the service (2006, p. 1). managing customer experience quality has become a crucial strategic ingredient for all organizations

14 Customer Experience 11 More than just service Whilst scholars, researchers, and managers acknowledge that experience should be the new focus of managerial attention, they are less unified on both its precise definition and its measure. This creates a dilemma for developing strategies and managing the customer experience (Klaus & Maklan 2007; Klaus 2011). Whilst acknowledging that firms are competing, increasingly, on the basis of customer experience, it is defined imprecisely and, as yet, there are no widely agreed measures of the concept (Maklan & Klaus 2011). More recent research indicates that customers evaluate the value of a product or service through the process of usage rather than at the moment of exchange (e.g., Tynan et al. 2010). Therefore, the product or service quality assessed at the point of purchase is necessary but not sufficient to determine the value of the product or service (Vargo & Lusch 2004). True value (Woodruff 1997), according to the marketing literature, is to be obtained through use (Woodruff & Flint 2006). For services, especially, value is often produced after the service encounter, as in the use of knowledge acquired on an executive course, applied at a later stage (Edvardsson et al. 2005), or a patient following advice by a medical clinician (McColl-Kennedy et al. 2009). Even in contexts such as entertainment, where the hedonic experience constitutes the service delivery (Murray & Bellmann 2011), the experience can be influenced by contextual factors such as the presence of other customers, and subsequently cannot be viewed as having been created exclusively by the service company (e.g., Schembri 2009). One stream of research identifies experiential factors to be a key component of customer experience, but these are missing from the construct of service quality (Lee & Lin 2005). An alternative research stream distinguishes between service quality and customer experience by challenging the definition of service quality and its commercial application, the Rater questionnaire and measurements as an overall appraisal (Zeithaml 1988). Voss, Roth, and Chase (2008) point out that service quality focuses on a transaction-specific appraisal rather than the concept of the customer journey, described as the customer s sequence of touch-points with the company in buying and obtaining service a prevalent notion in service design (Berry et al. 2002, Voss et al.

15 12 Measuring Customer Experience 2008). This notion, while verifying the definition of service quality in that a customer s perception may fluctuate during the journey (Schembri 2006), refines its static measurement. Cowley (2008), for example, shows that service encounters may be assessed retrospectively as more positive in order to rationalize a desired purchase. Payne et al. (2008) promote the idea that service experience goes further than the construct of service quality by observing that the customer journey may both precede the service encounter and continue after it. Other scholars draw on this work and propose an even further differentiation between service quality and the customer s service experience. For example, Payne et al. (2008) raise awareness of the fact that the customer experience includes not only communication and usage, but also service encounters. As a result, if it is suggested that customers evaluate their experience holistically (Verhoef et al. 2009). Analogous holistic frameworks have been put forward (Payne et al. 2008; Grewal et al. 2009), leading to calls for empirical assessments of the customer experience (Voss et al. 2008). In one of these consequent studies, Klaus and Maklan (2012) conclude that managing the customer experience is indeed different from managing customer service quality, which focuses upon single service episodes under the control of the company. While many scholars and practitioners acknowledge that experience should be the new focus of managerial attention, they are less unified on both its precise definition and its scope. This creates a dilemma for developing strategies, managing customer experience, and identifying best practice. Services marketing perspectives Service marketing literature concerned with the theoretical construct of customer experience, rather than managerial outcomes, is limited (Verhoef et al. 2009) and based on the notion that customer experience is a summation of all the clues a consumer receives from all direct and indirect interaction with a firm and their offerings, which add somehow to an overall experience (Mossberg 2007). This conceptualization of customer experience has been explored more recently, suggesting the holistic and

16 Customer Experience 13 total nature of the customer experience (Meyer & Schwager 2007). Meyer and Schwager (2007, p. 118) define customer experience as the internal and subjective response customers have to any direct or indirect contact with a company. Gentile et al. (2007) conducted empirical research on the role of experiential features of well-known brands and their products, such as Ikea and Nike. Their research suggests that the different components for understanding the customer experience include sensorial, emotional, cognitive, pragmatic (practically doing something), lifestyle, and relational components. By investigating the role of different experiential features in the success achieved by some products, their research suggests that a value proposition should include both experiential features (hedonic, experiential value) and functional characteristics (utilitarian/ functional value). This notion is similar to the findings of Schmitt (1999), who suggests that customer experience is based on different components important for engaging the customer at different levels: sense, feel, cognitive, physical experiences, lifestyle, and the customer s social identity relative to a reference group. Still, companies receive little assistance on how to incorporate all these levels in managing the customer experience. Palmer (2010, p. 198) likewise posits that the challenge for the development of a customer experience construct is to integrate a typically diverse array of stimuli in order to assess the trade-offs that are entailed in creating value for consumers. Stimuli present in a customer experience are typically interactive, and it has been pointed out by Csikszentmihalyi (1988) that the manner in which these stimuli are combined and sequenced is important in defining consumer experience, further complicating the matter of CX management. Verhoef et al. (2009) suggest that the customer experience is of a cognitive, social, affective, and physical nature. Their model of customer experience creation suggests that the determinants of the customer experience, and the corresponding management strategy, include social environment, service interface, retail atmosphere, assortment; price, customer

17 14 Measuring Customer Experience experiences in alternative channels, and the retail brand. Verhoef et al. (2009) state that the situation of the customer experience (e.g., type of store, location) and the consumer themself (e.g., attitudes, task-orientation) can moderate the overall customer experience. This model also reflects the work of other researchers, proposing the nature of customer experience as the customer s response to all direct and indirect encounters with a company (Gentile et al. 2007; Meyer & Schwager 2007). Verhoef et al. s (2009) customer experience creation framework, while quite comprehensive, as stated in the holistic description of the customer experience, fails to provide empirical support for their construct. Patricio et al. (2011) argue that experiences may be formed through interactions with multiple services from multiple organizations that go beyond the firm s offerings, and that we cannot only focus on isolated offerings. We need to contextualize the firm s service concept into the larger context of the value constellation experience and open new forms of service innovation (p. 197). The implications of this research on the individual company and their CX management, however, are rather broad in nature. Moreover, scholars suggest that customer experience, and therefore CX management, is context-specific (e.g., Lemke et al. 2011). Research exploring which context requires which CX management is, literally, non-existent. Ask the experts consultancy research The CX management practice field has developed very quickly in business practice. In order to contribute to both the scholarly and managerial understanding of CX management practice, it is crucial to include the current state of knowledge from research reports and white papers from business. This research is particularly relevant to the CX management discussion, given its recent and rapidly evolving nature. I focus on the period between 2010 and 2013, comprising reports from leading consultants and researchers: McKinsey, Forrester Research, Boston Consulting Group, Bain & Company, Accenture, Capgemini, KPMG, Ernst & Young, IBM, and the Temkin Group. The majority of the reports are of a conceptual rather than empirical nature, while the latter, unlike scholarly research, often do not discuss the method by which the findings and conclusions were derived in

18 Customer Experience 15 detail, if at all. Both conceptual and empirical studies focus on three main themes: best practice (e.g., Springer et al. 2011), how CX management relates to certain outcomes, and a combination of the two to introduce a tool or framework, such as customer-journey mapping (Rawson et al. 2013). The reports that define customer experience, just like academic research, favor the notion of the customer s perception of all interactions with the firm (e.g., Klaus 2013). The reports can be roughly divided into those written from either the customer s or the firm s viewpoint. The customer s view reports elaborate on how this should shape CX management practices. The consultants often focus on a particular approach to translate this knowledge into action (e.g., Girouard et al. 2012). The firm s view reports often focus on one particular area of possible improvement, such as partner alignment (Hagen 2013). In contrast to academic literature that explores definitions, antecedents, and consequences of CX, the practitioner focus is on tools and best practice that improve performance in one specific (manageable) area/context of CX management. The current practitioner literature therefore lacks a holistic perspective that embraces all facets of CX practice, including its strategic role. The emerging CX concept, aimed at guiding CX strategy and CX management, is broader than the limited functional service encounter suggested by current measures. It includes pre- and post-service encounter/purchase/consumption experiences, addresses emotional as well as functional dimensions of quality, and includes the customer s social context. It includes an assessment of value-in-use, is formed over multiple channels, and varies with context (Lemke et al. 2011). However, these holistic concepts of CX are often too broad in nature and are therefore not suitable to support organizations in successfully managing customer experiences and developing CX strategies. Klaus and Maklan s (2012) measurement of customer experience quality (EXQ) captures not only all facets of the construct of the customer experience, but measures the impact of the distinctive drivers of the customer experience on each of the components of the customer experience. They conclude, Managing the customer experience is, therefore, different from managing customer service which focuses upon single service episodes under the

19 16 Measuring Customer Experience control of the organization (Klaus & Maklan 2012). This apparent new emphasis of the literature begs the question of whether we are witnessing an emerging shift from service quality towards customer experience. And if this is indeed the case, what does customer experience add to our understanding of what drives loyalty, customer satisfaction, and word-of-mouth? What does this leave us with? This first chapter has delivered a broad understanding of the origins of CX research and knowledge, and how it evolved over time. The aim is to learn about how researchers viewed, explored, and defined CX in the past so that we can start where they left off and move on, instead of just repeating what they did. Each of the streams we explored gave us valuable insights, but also left us with important management questions, which still need to be answered in order to achieve what we are after measuring, and therefore successfully managing, the customer experience. The more we know, the more we need to know We know that goods and services are simply a means to an end; they have no value in and of themselves. People buy goods and services to have experiences, not the other way around. But, how effectively and over how long a time frame can consumers assess their end goals and the utilitarian value of an offering? We are aware that customers rational information processing alone is not sufficient to guide (and explain) their behavior. So, how do consumers assess and trade off between the emotional and rational aspects of an experience? Moreover, will this assessment vary depending on the context and the offering? And if yes, how and when will this variance occur? Managers need to be able to determine when emotional and when

20 Customer Experience 17 rational factors are more important to both the customer experience and the customer decision. We learned that extraordinary experiences represent a boundary condition upon the traditional confirmation disconfirmation paradigm of how consumers assess their experiences. This leads us to the question of how managers delineate between peak and mundane experiences in designing their customer experience practice. Extreme sports are clearly peak experiences, but, more practically, managers need to assess when and how shopping can become more peak than mundane, or vice versa. We identified that customer experience varies significantly in depth and length from assessments of customer satisfaction and service quality. Customer experience starts before the purchase/consumption of an offering, and lasts way beyond the point of sale and consumption into the time frame of using the product and service. This raises the question of what is a meaningful time frame over which a firm needs to assess customer experience. To what extent does a firm need to manage the experience? Moreover, we explored how other peers/customers have an indirect, but often significant, influence on others customer experience. However, the question of which and how much of the customer s indirect experiences are relevant to their assessment of the experience is difficult to answer. Even if we can answer this question, how do we manage, and account for, the influence of others on the individual s customer experience? While we now are aware that a traditional, transaction-based view of how customers obtain value through simple exchange is flawed, we don t know in which context (if any) an exchange-based managerial view (and corresponding strategy) of value is more appropriate than one based on customer experience. Researchers have established the consumer/customer as the ultimate value assessor and creator; hence, customer experiences are always co-created. However, the extent to which the customer wants to co-create and the capabilities the customer can contribute to the co-creation are not quite so clear.

21 18 Measuring Customer Experience We live in a brave new world where communication is related to learning and occurs in a many-to-many conversation that is not always mediated or controlled by the focal firm the power is shifted towards the consumer. This dialogue replaces the dominant persuasion paradigm of marketing communications. Managers are struggling with this power shift, and wonder how they can parse a long-term relationship into manageable dialogues that can be assessed for their impact upon the customer experience. What exact role will the firm play in these dialogues? Is the optimal approach to observe, to mediate, to engage with their customers, or use any possible combination of all these options? Consultants and market researchers identify customer experience as the next competitive marketing arena and the basis for organizing a firm s activities. Their research provides case-based, best practice examples. However, how managers can construct a business case for an CX investment is not clear. Is more (experience) always better? So, where does this leave us? The current status quo of customer experience research pushes managers to accept a vast increase in responsibility for customer outcomes at a risk of CX becoming a theory and practice of everything (see Table 1.2). Managers don t find this vision either satisfactory or desirable. How can the CX management challenge be approached? This is how, we take the best of all worlds and combine it to gain true insight. We take the academic rigor, managerial insight, and consultants knowledge, and explore HOW firms today manage the customer experience. Using these insights, we can then classify firms. Understanding the range of CX practices will help managers to evaluate their own practices and determine investment priorities, and provide a clear link to profitability. Profitability is, after all, the firm s ultimate goal. In the next chapter I dissect and cluster existing CX management practices, delivering the foundation for all your CX aims.

22 19 table 1.2 Key customer experience research and managerial challenges 1.1 Category Content The concept of customer experience 1.2 Literature Streams Economic perspectives Rational cognitive theories of traditional Cognition, Affect, Behavior (CAB) Experiential emotional theorists and the role of affect Peak or immersive 1.3 Example Literature Keynes (1936) Parsons (1934) Fishbein and Ajzen (1976) Sheppard et al. (1988) Hirschmann and Holbrook (1982) Arnould and Price (1993) Key Findings or Conclusions * Goods are a means to an end utility, not valuable in and of themselves. Assumes consumers are rational information processors able to assess the consequences of their decisions against the cost when purchasing. Hedonic consumption posits that value is generated from experiences, not the acquisition of goods; people consume experiences using emotional and hedonic faculties. Out-of-the-ordinary experiences represent a boundary condition upon the traditional confirmation disconfirmation theory of how consumers assess experiences. 1.4 Important Management Questions How effectively and over how long a time frame can consumers assess their end goals/utility? How do customers asses and trade off between emotional and rational aspects of experience, and how does this vary by context? In which circumstances are hedonic and emotional factors most important to consumers? How do we delineate between peak and mundane experiences in practice? Extreme sports are clearly peak experiences, but, more practically, when and how can shopping become more peak than mundane? (continued)

23 20 table 1.2 Continued 1.1 Category 1.2 Literature Streams 1.3 Example Literature Key Findings or Conclusions * 1.4 Important Management Questions Total, or holistic Verhoef (2009) Identifies the depth and length of consumer experience in the context of retail. What is a meaningful time frame over which a firm needs to assess customer experience? To what extent does a firm need to manage the experience? How much of customers indirect experiences are relevant to their assessment of the experience? Process How customer experience arises and evolves Unidirectional perspectives Kotler (1991) Traditional transaction-based view of customers obtaining value through the exchange of goods. In which contexts (if any) is an exchange-based view of value a more appropriate perspective for managerial decision-making than an experience-based view? Co-creation Vargo and Lusch (2004) Establishes the customer (consumer) as the ultimate creator of value, hence experiences are co-created. To what extent does the customer wish to co-create? What capabilities can the customer contribute to co-creation? (continued)

24 21 table 1.2 Continued 1.1 Category 1.2 Literature Streams 1.3 Example Literature Key Findings or Conclusions * 1.4 Important Management Questions Dialogical perspectives Ballantyne and Varey (2006) Communication is related to learning and occurs in a many-to-many conversations, which are not always mediated by the focal firm. Such dialogue replaces the dominant persuasion paradigm of marketing communications. How should managers parse a long-term relationship into manageable dialogues that can be assessed for their impact upon experience? What is the optimal role for the firm to play in dialogues amongst customers? Brand communities McAlexander (2002) Shouten and McAlexander (1995) Descriptive contributions to the impact of shared experience on consumer experience and brand engagement. To what extent can firms manage the indirect influences of peers upon the experience? Practice How customer experience is managed Consultant/ practitioner Pine and Gilmore (1999) Schmitt (2003) Identifies customer experience as the next competitive marketing arena and the basis for organizing a firm s activities. Practitioner-based articles provide case-based best practice. However, how managers can construct a business case for investment is not clear. Is more (experience) always better? Services Marketing Perspectives Prahalad and Ramaswamy (2004) Co-creation of experiences is the basis of consumer value. The customer phenomenologically determines value. How do firms orchestrate complex experience networks?

25 Index Accenture, 14 Bain & Company, 14 balance sheet, Behavioral Loyalty Scale, 135, 141 best practice vs. next practice, Boston Consulting Group, 14 brand community research, 8 brand experience, 90 1, 98, 125 6, 129, 137, 138, 140 co-creation, 2, 7 10, 17, 37, 81 2 cognition, affect, and behavior (CAB), 4 5 confirmation disconfirmation paradigm, 5, 17 Confirmatory Factor Analysis (CFA), 87, consultancy research, customer behavior and customer experience, link between, 91 2 Customer Experience Strategy, 15, 22 9, 30, 36, 40, 41, 42, 45, 53 5, 57, 59, 64, 66, 68 70, 71, 73 5, 78, 80, 94, 96 8, 102, 104, , customer experience (CX) balance sheet, challenges to, 40 2, 50 customer behavior vs., 91 2 customer satisfaction vs., 93 4 CX management practice evaluation, 80 from customers viewpoint, 77 9 definition, 13, 30 5, 50 delivery, drives superior performance, measuring, dynamic capabilities, 73 4 governance of, 37 9 importance of, 1 21 management of see management of customer experience measurement of, 75 7, 86 90, multi-channel practices, objectives of, 30 5, 50 origins of, 1 21 policy development, practices to profitability, linking, research and managerial challenges, 3 4, scope of, 30 5, 50 service quality vs., 83 6 transcendent customer, 6 transforming capabilities, 74 typology, 45 57, 67,

26 Index 165 customer experience quality (EXQ), 15, 18, 76, 86, 90 1, 100 1, development process, scale see EXQ scale power of, 99 customer retention, 105, 112 customer satisfaction, 1, 2, 10, 17, 31, 34, 35, 38, 40, 52, 53, 55, 56, 68, 70, 76, 77, 84, 85, 89, 91 5, 98, 100, 105, 106, 108, 110, 112 customer experience vs., 93 4 Customer Satisfaction scale, 135, 141 customer-journey mapping, 15 data saturation, 26 Drucker, Peter, 81 dynamic capabilities, 73 4 economic perspectives, 4 emotions, role in CX management, 5 employees role, in CX delivery, experience economy, 82 Exploratory Factor Analysis (EFA), 87, 89 sample profiles, scale purification through, 89, EXQ scale, 90 1, 100 1, conceptual framework, connection to outcomes, customer behavior CX connection, analysis of, 91 2 customer satisfaction CX connection, analysis of, 93 4 dimensions and item generation, purification through EFA, 89, qualitative study, reliability and validity assessment, 89 90, scale generation, 87 9 structural equation modelling, extraordinary experiences research, 5 6 financial planning services, 105 financial services, 105 flow experiences, 6 free resources, 118 governance of customer experience, 37 9, 50 IBM, 14 Ikea, 13 knowledge-sharing process, 7 Latent Gold software, 58 loyalty, 6, 10, 32, 34, 35, 41, 53, 55, 71, 76, 92 5, 97, 98, 100, 108, 110, 112, 123, 128, management of customer experience, 50 challenges to, data analysis and dimension generation, 27 9 dimensions of, literature, 10 method, 23 people development, 35 7, 50 practice, types of, process development, 35 research protocol, 24 sampling, 24 7 strategies and practices, 22 9 multi-channel CX practices, overcoming challenges to, Net Promoter Score (NPS), 32, 38, 39, 56, 76, 77, 84, 93, 106 Nike, 13

27 166 Index online experience, peak experiences, 6 people development, 35 7 policy development, post-purchase/consumption experience, 91, 98, 126, 129, 137, 138, 141 Preservers CX management practices, 52 3, 70 2 process development, 35 purchasing behavior, 2, 76, 84, 89, 91, 92, 120, 121 rational consumer behavior, 5 rationality, power of, 4 repurchasing behavior, 2, 76, 91, 92, 121 Ryanair, 22 service (firm) experience, 91, 98, 126, 129, 137, 138, service classification scheme, 26, 122 Service Profit Chain (SPC), 35 service quality, vs. customer experience, 83 6 Servicescape, 56 SERVPERF, 135 SERVQUAL, 83 4, 92, 94, 121, 135, 136 7, share-of-category, 2, 76, 86, 89, 91, 94, 98 share-of-wallet, 76 SPSS, 58 structural equation modelling, SWAG, 118 Total Quality Management (TQM), 33 5, 79 transcendent customer experience, 6 Transformers CX management practices, 53 4, 71 2 transforming capabilities, 74 TripAdvisor, 8 typology, 45 57, 67 data analysis, 144 value-in-use, 82 Vanguards CX management practices, 54 7, wealth management clients, 123 word-of-mouth behavior, 2, 6, 76, 84, 86, 89, 91 5, 98, 100, 108, 110, Word-of-Mouth Behaviors scale, 135, 141 2